Tigertree wrote I'm not too worried about it. I see three possible scenarios. One: Prices freeze. Either an increase in production or some backroom deals are worked with Mexico or Venezuela to offset middle east instability. We're growing steadily in both the retail and wholesale fronts right now. Consumer confidence will grow within a few months of seeing that prices have leveled off.
Expecting prices to freeze assumes that the majority of the price of a barrel of oil is a "fear component" based on middle instability political instability. That's a higly over-simplified view of the oil markets and doesn't even begin to account for massive growing demand for oil in China/India, which we should be reminded contain at least 3 times our populations. Take a look at a picture of an Indian traffic jam and you'll understand why our prices aren't going to freeze in the near term.
For example, the average vehicle speed through the city of Mumbai has fallen from 35mph in 1952 to 15mph today.
Any pause in pricing is only likely as a short term effect before they start trending upwards again.
It's unlikely we're going to bend either Mexico or Venezuela over our national knee over oil. Other than threatening to invade them, what exactly are we going to bargain with? Besides which, Chavez is currently killing Venezuela's oil industry and so even if he eventually leaves power, it will be years to restore it to its state pre-nationalization (not that nationalization was the problem per se).
Tigertree wrote Two: Prices decline. We've had a gas crisis in this country before. This could just be a worse version. It could be caused by the same reasons I already mentioned. It could be a drastic increase in domestic oil production. I don't know how that would happen, just putting it on the table. After the past few years, this would be the biggest shot in the arm our economy could ever ask for.
Comparing the oil shocks of the 70s to today is comparing apples to oranges. That was a political emargo by OPEC, none of which is being propogated today except to the extent that OPEC member aren't interested in adding huge amounts of capacity to their existing systems, but why should they? Why would any country add existing capacity over and above their existing full capacity, especially when the trend is for oil-producing nations to nationalize their oil industries? They make bank when oil is a tight commodity, and they make nothing when they run out of it, so there's little interest satisfying American arrogance for cheap gasoline by pillaging their natural resources to sell to us on the cheap. As long as rising demand continues out-stripping declining supplies, this problem will persist.
We're also not going to drill our way out of this on our home turf. The oil industry has already pumped the vast majority of the "Jed Clampett pools bubbling crude" out of our national grounds and all with all American oil fields in decline and bottoming out, the best expanding domestic drilling is going to do when finally brought online (after a number of years lag time) is push off the complete drying up of American-sourced oil.
The most promising new sources of oil, say the Canadian tar sands, are only viable if the price of a barrel of oil rises to the point of making them viable. The problem with oil supply is that all the easy oil has already been got to and that the rest of the oil requires much higher capital investment and recovery costs thereby guaranteeing that even if you recover it, it's going to be recovered at a higher price from the start.
Tigertree wrote Three: Prices spike. Alot. If prices go up to 6.50 that quickly I am probably pretty screwed. At least on the retail front. As the dollar falls, the overseas market gets more and more desirable, and that is definitely a big focus for us right now for wholesale. But since there is no way for me to survive (and make any sort of profit) if this scenario holds true, it's just not worth it for me to operate as if it is happening. So I will continue to operate as if the first two are more likely (which I happen to believe they are anyway) and will just be forced to deal with number 3 if it occurs.
Prices aren't likely to spike short of a major war or political development. Oil is simply following a natural supply and demand curve. Demand is going up, but supply isn't, and isn't likely to follow at the same pace of demand. To the extent that speculation is driving up the price, that becomes less and less of a major component as the price goes up, because speculation isn't driving the whole price. The demand curves in growing Asian economies are skyrocketing and since we've got little influence over controlling their demand short of a Kyoto-type protocol, we're facing with tackling our own.
Assuming that an independent business can't survive in a oil-strapped world assumes your customers would rather change jean designers than transportation habits. That's being kind of condescending to your customers that they wouldn't be smart enough to determine that their transportation dollar is buying them less and less of the same restricted transportation option that they're being offered on a daily basis. As the NYT article pointed out, transportation habits are changing, and increasing gas prices will only force them to change more as more and more of society is forced to examine where their transportation dollars are going.
What retailers should be concerned with is that as society has begun to determine that they would like a widened variety of transportation options to conserve their transportation dollar, that those options stop at, or go by, their front door whenever possible.
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Launched in August 2010, TheMetropreneur.com is a local online resource devoted to small business development and entrepreneurship. Its aim is to tell the stories of Central Ohio's business community, foster regional economic development and assist entrepreneurs with its resource-heavy focus.